New 6% state sales tax is higher due to rounding

ECONOMIC NAVIGATION AND SIGHTSEEING

January 06, 2008|By JAY HANCOCK

Maryland's higher, 6 percent sales tax took effect Thursday and drew plenty of comment. "Do I give the extra penny to you or do I send it right to Gov. O'Malley?" somebody queried the cashier as I stood in line to buy breakfast. Until Thursday, Maryland's sales tax had been 5 percent.

Forgotten, however, is that the old rate was actually often more than 5 percent, and the new rate will often be more than 6 percent. Why? Unlike most states, Maryland rounds the tax up to the next-highest penny even if a strict 6 percent calculation says only a third or a fourth or a 10th of an extra penny is owed.

So ... if you buy a $1 worth of nails, the tax is 6 cents. But if you buy $1.01 worth of nails, the "6 percent" tax is 7 cents - at least in Maryland. (And legislators sometimes wonder why the state gets a reputation for being tax-greedy!) Of course, a 7-cent tax on a $1.01 sale equals 6.93 percent. I didn't hear anybody in Annapolis talking about raising the sales tax to 6.93 percent.

This is not how your third-grade teacher taught you to round numbers. Many states use "mathematical rounding," in which the tax isn't bumped up to the next penny unless at least half an extra penny is owed. Maryland's little scheme nets it an extra $18 million a year, the comptroller's office has calculated.

Sometimes tax increases are necessary, and sales taxes aren't a bad way to raise revenue. But it would have been nice if, even as they raised the rate, legislators had ended the fudge and made 6 percent mean what it says.

jay.hancock@baltsun.com

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